The keynote speaker was Todd S. Adams, chairman and CEO of Adams Bank & Trust, and board member of the Omaha Branch of the Federal Reserve Bank of Kansas City.

As a prelude to discussing current economic conditions, Adams gave the audience some background information about the purposes and functions of the Federal Reserve System.

It was established on Dec. 23, 1913, and — unlike other central banks — it is independent, reports to Congress and any earnings or assets are returned to the Treasury Dept.

There are 12 regional Federal Reserve Banks which are responsible for operating a nationwide payments system, distributing the nation’s currency and coin, regulating and supervising member banks/holding companies and serving as a banker for the U.S. Treasury, including processing Treasury bills, notes and bonds.

The Federal Open Market Committee meets every six weeks to help set interest rates.

“The Federal Reserve has every kind of statistic that you can think of,” Adams said. “What they don’t know is what business people are thinking now and plan to do for the future.”

So, they talk to people in the community and conduct surveys to gather input before making policy decisions.

Now, for current economic conditions.

Unemployment is continuing to rise, and many people are “under-employed — working less than 40 hours per week or not at the level they’re capable of,” Adams said. “But we’re a consumer economy.”

About 70 percent of the economy is driven by consumers, who have been beleaguered by economic conditions and unemployment.

“I’m not an economist — I don’t want to talk to you as one,” Adams said. “But as a banker, I know that no new jobs equals no new income. And no new income equals no new sales.”

So it becomes a cycle.

One of the lagging indicators of the economy is bank profits. Banks in the United States posted a $3.7 billion loss during the second quarter, he said. One in four is unprofitable.

And “one of the things we have to face in this country is the doctrine of too big to fail,” Adams said. “What does it mean? That no matter what you do, no matter what decisions you make — the taxpayers of the country will step in and put the chips back on the table for you so you can continue? Is that what we want to do as a nation?”

Currently, there are 416 banks, with $300 billion in assets, on the “problem” list, so the pace of bank closures is going to rise, he said.

As for the banking industry, not only has the cost of insurance gone up, but the Federal Deposit Insurance Corp. recently required insured institutions to pre-pay their estimated quarterly risk-based assessments — not only for fourth quarter 2009 but through 2012.

This should bring in an estimated $45 billion to strengthen the FDIC’s position.

“In its 75 years of existence, the FDIC has never cost taxpayers a dime,” he said. “Healthy banks like us have to pay a part of that (covering bank failures) — but that’s the cost of doing business.”

As banks and other financial institutions have increased capital requirements, “they’ve reduced their loans — but we’re still happy to take your deposits and lend you money,” Adams said, and the audience laughed.

“We are so fortunate to live and work in the part of the country that we do, because our recovery will be quicker and our downturn was not as bad,” he said. “But as a country, we need to encourage small business recovery and growth. A jobless recovery is like a loveless marriage — it’s not very satisfying.”

More audience laughter.

“We’ve got to get people back to work in meaningful things to get the engine of the economy going. We have to make something of value that people want, by incentivizing business and manufacturing jobs,” Adams said. “One of the things that made our country great is the animal spirits of our small business people — but we’re not encouraging that spirit right now.”

He said that because of uncertainty, small business owners are not going to take risks — they’re going to sit on their assets.

(This time the audience fairly howled.)

Rebecca Tonn covers banking and finance for the Colorado Springs Business Journal.

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